Sinking oil prices threaten Hugo Chavez's revolution

CARACAS — High oil prices allowed Venezuelan President Hugo Chavez to spend freely to spread his Socialist gospel and challenge the U.S. role as the dominant player in Latin American and the Caribbean.

The sharp drop in oil prices is imperiling those ambitions, analysts said Tuesday, a day after the Venezuelan government announced that it's suspending free heating oil to poor people in the U.S. Oil accounts for 93 percent of the government's export income and about 50 percent of its overall income.

"Hemispheric politics are suddenly becoming too expensive for Chavez," said Carlos Alberto Lopez, an energy consultant in Bolivia. "He will have to allocate his dwindling resources to sustaining his political position in Venezuela."

Chavez is facing a crucial political test in the near term. He's asking Venezuelan voters to lift term limits so he can seek re-election once again in 2012. The national referendum could be held as soon as Feb. 15.

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Polls show that Chavez trails by 20 or so points and can't risk reversing his enormous expansion of government spending aimed at the poor, his core group of supporters.

That puts oil subsidies and other foreign assistance programs throughout Latin American and the Caribbean on the chopping block.

Recent news reports have put in doubt whether Petroleos de Venezuela, the state oil company better known as PDVSA, can finance planned oil refineries in Ecuador and Nicaragua, two Chavez allies.

"We know that PDVSA doesn't have the cash," said Jorge Pinon, an Energy Fellow at the University of Miami's Center for Hemispheric Policy. "We also know that the financial markets don't have any money to loan. Those projects are not going to be carried out."

Another potential target: the Petrocaribe program under which Venezuela sells 56,000 barrels a day of oil and diesel to nearly 20 Caribbean and Central American countries under generous terms. The countries have to pay for only about half of the oil, with the rest to be paid over a 25-year period.

The program paid dividends in 2006 when the 15-nation Caribbean Community backed Venezuela's bid for one of the 10 rotating seats on the U.N. Security Council, although the effort ultimately was unsuccessful.

"We are quite confident that Petrocaribe will continue," Ralph Gonsalves, the prime minister of the island nation Saint Vincent and the Grenadines, told McClatchy in an interview. "I specifically raised this issue with Venezuelan authorities recently. I don't see a problem."

Venezuela also sells 15,000 barrels a day of subsidized oil to Central American nations and an unknown amount of subsidized diesel to Bolivia.

The Chavez government also provides nearly 100,000 barrels a day of oil and oil products to Cuba, a close ally. The price to Cuba is unknown, but is likely free.

Bolivia gets millions of dollars a year from Venezuela for President Evo Morales to hand out to his nation's mayors for new schools, sewer systems and health clinics. Venezuelan money also underwrites Cuban doctors in Bolivia who perform free eye surgeries, as well as helicopters that ferry Morales throughout the country.

In all, the oil subsidies and foreign assistance programs are believed to have cost Chavez billions in 2008, although no one has exact figures because the spending is off-budget.

Chavez could finance all of the programs abroad — and the vast antipoverty programs at home — with oil at high prices in recent years and climbing. At roughly $50 a barrel, however, global oil prices are far below their July record of $147.

"Chavez's meddling will certainly be a lot less effective in 2009," said Jorge Quiroga, a former president of Bolivia.

Quiroga added that the oil price dive would scuttle PDVSA's plans to spend hundreds of millions of dollars to find natural gas in Bolivia, a priority for Morales' government.

Miguel Octavio is a Caracas-based financial analyst who writes a political and economic blog that outlined the coming crash crunch for the Chavez government.

In a Dec. 6 posting, Octavio estimated that Venezuela could receive only about $25 billion a year in oil export income with prices at the current level. Adding non-oil exports of about $5 billion and subtracting imports of about $50 billion, Venezuela is facing a $20 billion shortfall in dollars in 2009, if oil prices don't rise, Octavio estimated.

"The Venezuelan government could be in a lot of trouble," Octavio said in an interview. "Chavez is between a rock and a hard place."

Chavez initially pooh-poohed those who warned that the global economic crisis could threaten his so-called 21st Century Socialist Revolution.

In recent weeks, he has said that Venezuela will have to tights its belt but that foreign reserves — estimated to be $40 billion to $75 billion — will tide Venezuela over until oil prices rise again.

No longer providing 100 gallons of heating oil to the poor in the U.S. — at a value of about $250 per customer — will save the Chavez government about $100 million.

The government has saved another $2.5 billion by announcing that it will limit Venezuelans to spending no more than $2,500 abroad a year with inexpensive dollars provided by the government. The previous limit was $5,000.